Unintended transitions: Employment outcomes following firm closures during vocational education and training$dLeonie Wicht

Abstract

Dual vocational education and training (VET) plays a central role in the school-to-work transition in Germany, yet a substantial share of training contracts is terminated prematurely. Estimating the causal effects of such disruptions is challenging due to endogenous selection into dropout. This study exploits training firm closures as unexpected shocks that displace apprentices during VET. Using administrative data on the universe of German apprentices between 2008 and 2022, a matched event study design estimates the impact of displacement on employment outcomes over the subsequent eight years. The results show that displacement during VET leads to small but persistent earnings losses. Relative to non-displaced apprentices, earnings from regular employment fall by up to 780e per year (about 4.5 percent) four years after displacement and by roughly 2 percent in later years. These losses are modest compared to displacement from regular employment, consistent with strong institutional support that helps affected apprentices to continue with a new training firm and complete VET. However, apprentices without a school degree experience substantially larger and increasing earnings losses. A decomposition analysis indicates that the overall earnings losses are largely driven by substantial penalties among apprentices who drop out after displacement. In contrast, those who complete VET experience only small earnings losses, and displacement increases the risk of dropout only marginally. Overall, the findings highlight the protective role of institutional arrangements in the German VET system, while also showing that not all apprentices access or benefit from these supports equally.